After 70 years of expanding occupational-licensing laws, which mandate job qualifications for professions ranging from cosmetology to law, the evidence is mounting that these regulations produce large losses in employment and fail to protect customers. More than 20 states have already passed some form of universal licensing reform—a way to reconcile the different requirements in each state—and Florida may soon join them. A first-of-its-kind, 50-state study just released by the Mercatus Center suggests that these states are on the right track.
The theory of occupational licensing stems from the belief that, if left to their own devices, professionals might do things that harm consumers. While this may have been true at some point, it’s hard to go a minute in today’s digital era without seeing an incident of malpractice publicized on YouTube or X, or in a negative review posted on a consumer website. We’ve learned a lot about how to keep one another accountable.
Yet, the number of jobs subject to occupational licensing has swelled, ranging from funeral attendants in Massachusetts to florists in Louisiana. In addition to stifling promising new careers and imposing heavy costs on workers seeking to relocate to a new state with different requirements, these rules have failed to make meaningful contributions to consumer wellbeing. Numerous studies, including some of ours, reveal an absence of substantial evidence that occupational licensing improves product quality or consumer protection.
The new Mercatus study (by article coauthor Makridis and the Mercatus Center’s Patrick McLaughlin) uses machine learning on all 50 states’ regulatory texts to determine their effects on employment and wages. It finds that, while a 10 percent rise in regulatory restrictions leads to a 3.3 percent rise in hourly wages, this effect in turn helps spur a 4.4 percent decline in employment. The higher wages reflect fewer workers competing for customers, as jobs are killed off in the aggregate. The result on employment is especially important because social scientists have traditionally believed that licensing raises the probability of employment: by establishing barriers to entry, incumbents have an easier time retaining their jobs. However, as the Mercatus study shows, while this may be true for specific individuals, it doesn’t hold across the economy.
The investments of time and money needed to obtain licenses (education, testing, internships, apprenticeships, and so on) delay earnings and deepen the historical disadvantages of marginalized groups. The Obama administration’s 2015 report, “Occupational Licensing: A Framework for Policymakers,” underscored this issue, noting that established professionals can use occupational-licensing requirements against their competitors, and that these regulations play a role in inflating consumer costs and creating exclusionary markets. Occupational licensing, then, can be seen as a kind of regulatory capture.
The debate goes beyond service jobs like cosmetology, extending even into the legal profession. Researchers such as Deborah Jones Merritt, Andrea Anne Curcio, and Eileen Kaufman have questioned whether the current regime of legal exams and schooling effectively ensures minimum competence. Even if these restrictions did not carry adverse supply effects, many question their effectiveness at guaranteeing quality in the workforce relative to alternative licensing pathways.
The accounting profession is also experiencing a talent shortage at least partly attributable to stringent licensing requirements. The hotly debated 150-hour rule for CPA candidates, initially adopted by Florida in 1983, mandates that CPAs receive 150 hours of accounting education before licensure. This increase from the previous 120 hours has led to the proliferation of master’s programs designed to meet the new standard. However, the lack of uniformity across states in the educational content provided by these additional hours and their questionable impact on practice-readiness have brought the rule under scrutiny. Minnesota and Oklahoma are exploring alternatives, including varying combinations of education and work experience.
Many occupations beyond cosmetology are therefore ripe for regulatory reform that would balance the needs of consumer protection and adequate numbers of professionals. As professions grapple with these considerations, states are also beginning to realize that 50 different regulatory regimes are costly for workers and diminish their economic prospects. The debates and reforms currently underway are a good start.
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